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Retirees Face $9,000 Tax Hit Due to Overlooked Superannuation Move

Retirees Face $9,000 Tax Hit Due to Overlooked Superannuation Move

Around 700,000 retired Australians may be paying more tax than necessary due to not switching their superannuation to the retirement phase. The Super Members Council (SMC) found that many retirees leave their super in an accumulation account instead of transferring it to a pension account.

Superannuation in the accumulation phase incurs a 15% tax on investment earnings. However, when moved to the retirement phase, these earnings become tax-free. Retirees who fail to make this switch could pay an extra $650 per year in taxes. Over a typical retirement, this could amount to a $9,000 tax hit.

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Lack of Awareness Costing Retirees Thousands

Many retirees are not making the switch because they either don’t know they need to or feel disengaged from their superannuation.

Super Members Council CEO Misha Schubert highlighted the issue, stating, “Not knowing enough about super can lead to poor decisions, like leaving accounts inactive or withdrawing funds without proper planning.” She also noted that financial advice reforms could help them access affordable advice.

According to SMC research, 39% who keep funds in an accumulation account do so because they don’t know what to do with it. Only 26% of retirees have sought financial advice from their super fund.

Superannuation Reforms Aim to Improve Advice Access

In December, the federal government announced reforms to help Australians access quality and affordable financial advice through their super fund. These changes aim to create a new category of financial advisers to offer simple, safe advice to retirees.

The government also plans to introduce service standards for super funds. Many funds have faced scrutiny for slow payments of death and disability benefits, highlighting the need for improved consumer protections.

Super funds may also provide personalised “nudges” at key life stages to help members make informed decisions. The Association of Superannuation Funds of Australia (ASFA) found that one in two Australians have never received financial advice on retirement planning.

Average Super Balances and the Tax Burden

The Australian Taxation Office (ATO) reports that men aged 65-69 have an average super balance of $453,075, while women have $403,000. If these funds remain in the accumulation phase, retirees could be losing thousands in unnecessary superannuation tax.

For a retiree with $100,000 in an accumulation account, this tax hit amounts to $4,500 over time. With a $200,000 balance, it doubles to $9,000.

Delivering Better Financial Outcomes for Retirees

The Labor government’s “Delivering Better Financial Outcomes” package seeks to ensure all Australians can access affordable financial advice. However, it has yet to be legislated.

Schubert believes these reforms could be a “big missing piece of the retirement puzzle.” Many retirees struggle to afford advice, with four in five Australians aged 45-54 needing financial guidance but unable to pay for it.

By making financial advice more accessible and ensuring super funds support members at critical stages, the government hopes to prevent retirees from losing money to unnecessary taxes.

What Retirees Can Do Now

Retirees should check whether their superannuation is still in the accumulation phase. If so, transferring it to the retirement phase could save thousands in superannuation tax.

Financial advisers and super funds can help navigate this process. While government reforms aim to improve access to financial advice, retirees should act now to avoid unnecessary losses.

Wrapping Up!

Retirees must stay informed about their superannuation to avoid unnecessary tax hits. Moving from accumulation to the retirement phase can save thousands. With upcoming financial advice reforms, accessing guidance may become easier. However, retirees should act now, seek advice, and optimise their super to secure a financially stable retirement.

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